UNITED STATES DEPARTMENT OF AGRICULTURE 
BULLETIN No. 1095 



Washington, D. C. 



October 12, 1922 



PRODUCERS' COOPERATIVE 

MILK-DISTRIBUTING 

PLANTS 



By or Bf JESNESS, Specialist in Cooperative Organization, W. H. BARBER, 

Assistant in Marketing Dairy Products, and A. V. SWARTHOUT, Investigator 

in Market Business Practice, Bureau of Agricultural Economics, and 

C. E. CLEMENT, Market Milk Specialist, Dairy Division, 

Bureau of Animal Industry 



CONTENTS 



Establishing a cooperative milk plant . -. . 2 

Essentials for success (,. 2 

Marketing contracts 4 

Methods of financing 4 

Forming the organization 5 

Incorporating the organization 5 

By-laws of the organization '. . 6 

Obtaining a suitable building 6 

Location of a milk plant 7 

Type and construction of building . . . . ' 8 

Arrangement of the plant 9 

Equipment of the plant 11 

Lists of equipment 12 

Investments in plant and equipment ... 15 

Management of milk-distributing plants . 17 



Qualifications, duties, and responsibilities 

of managers . 17 

Selecting a manager 19 

Problems in operating milk distributing 

plants . .• 20 

Route salesmen and deliverymen .... 25 

Methods of increasing sales 27 

Costs of milk distribution 28 

Necessity for adequate accounting system 29 
Essentials of an adequate accounting sys- 
tem 30 

Essential records for an adequate account- 
ing-system 31 

Cost of keeping adequate records 36 

Appendix 37 




WASHINGTON 
GOVERNMENT PRINTING OFFICE 

1922 




tlBltARY OF C0N€IKI8S 

NOV 8-19^^ 

DOCUMENTS DiVlilON 



•V^ v^ » 



.x^ 



UNITED STATES DEPARTMENT OF AGRICULTURE 



^W BULLETIN No. 1095 ^W 



Washington, D. C. T October 12, 1922 



PRODUCERS' COOPERATIVE MILK-DISTRIBUT- 
ING PLANTS. 

By O. B. Jesness,^ t^pecialist in Cooperative Organization, W. H. Bakbek/ As- 
sistant in Marketing Dairy Products, and A. V. Swaethout, Investigator in 
Market Business Practice, Bureau of Agricultural Economics, and C. Ei. 
Clement, Market Milk Specialist, Dairy Division, Bureau of Andinal Industry. 

Milk producers supplying a number of cities have undertaken to 
solve some of their milk-marketing problems by the establishment of 
cooperative milk-distributing plants. The objects sought and the 
conditions which prompted the producers in their actions have been 
varied. In some instances a number of producers, each delivering 
direct to consumers, have sought to eliminate the duplication result- 
ing from their individual route-delivery services and to reduce the 
cost of distribution by establishing a cooperative plant with a cen- 
tralized delivery system. Difficulty in procuring necessary farm 
labor has been a factor in some instances in encouraging the estab- 
lishment ©f a central plaiit, since it' enabled the producers to devote 
more time to production. 

Ordinances requiring tuberculin testing of all cows or the pasteuri- 
zation of all milk under strict sanitary regulations of the health de- 
partment have in some cases made it desirable for producers to estab- 
lish a cooperative milk-pasteurization plant in order to comply with 
the city ordinances. In some instances producers have purchased 
privately owned plants with a view to effecting greater efficiency and 
economy in handling and distributing their milk supplies. Low 
prices and alleged unfair treatment from private concerns sometimes 
have aroused action which has resulted in the establishment of coop- 
erative plants. 

Cooperative milk-distributing plants at present are located mostly 
in small cities where a satisfactory system of distribution had not 
previously been developed. Milk producers supplying the larger 
cities usually have organized cooperative associations for the purpose 
of acting as agents for their members in making contracts for the 

1 Resigned. 

108510°— 22 1 



2 BULLETIN 1095, U. S. DEPAETMENT OF AGKICULTUEB. 

sale of milk to city dealers. To distribute cooperatively a consider- 
able proportion of the milk supply of a large city would require an 
organization with a large capital. The problem of operating large 
milk- distributing plants is more complex in large cities than in small 
cities where the producers are located in the immediate vicinity of 
the city in which the plant is established. 

ESTABLISHING A COOPERATIVE MILK PLANT. 

The advisability of establishing a cooperative milk-distributing 
plant can not be determined without first having obtained complete 
information as to local conditions. To obtain this information a 
careful survey of the local situation should be made. This survey 
should include such important factors as the present marketing 
methods and conditions, existing marketing facilities, the direct bene- 
fits of a cooperative plant to producers, the attitude of the producers, 
the support likely to be given the enterprise, the volume of business 
available, means of financing the venture, and such other information 
as will be helpful in determining the possibilities of success in operat- 
ing a cooperative plant. 

An actual need for a cooperative milk-distributing plant should 
exist among the producers, A desire and demand for a cooperative 
plant should be manifested by the producers themselves. Unless 
the sentiment of the producers is strongly in favor of a cooperative 
plant, and they feel that a plant is an absolute necessity for the solu- 
tion of their problems, adequate financial support and sufficient vol- 
ume of business for successful operation may not be obtained later 
when needed. Active leadership of a sane and sound character must 
exist somewhere among the producers, for it will be required in the 
administration of the business later by the board of directors. 

ESSENTIALS FOR SUCCESS. 

A first essential for success in a cooperative plant is sufficient vol- 
ume of business to make economical operation possible. The actual, 
supply of milk pledged for delivery to the cooperative plant must be 
given careful consideration. If only a small part of the milk pro- 
duced in the locality is pledged, it may be impossible to operate the 
plant efficiently and economically. Specific figures can not well be 
given, but it has usually been found that unless at least two-thirds of 
the milk marketed locally is pledged to the organization, it is ad- 
visable to defer the establishment of a cooperative plant until the 
necessary support has been obtained. 

Efficient management is essential in any business. Especially is 
this true in cooperative milk plants, because many technical and prac- 
tical problems must be handled properly to obtain best results. Effi- 
cient business methods are essential to good management and an ade- 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 3 

qiiate accounting system is indispensable in keeping a check on the 
business. 

A conviction on the part of the members that cooperation, or a 
working together, will benefit each individually is essential for the 
success of the organization. The members should understand that as 
members of a cooperative organization they must give it their moral, 
financial, and material support, for its success depends directly upon 
them. Every member should regard the cooperative milk plant as a 
business enterprise whose success will contribute to his success. Its 
cooperative features give it no supernatural power that will keep it 
from failure when it is mismanaged or not properly supported by its 
members. 

Before launching into the operation of a cooperative milk plant, 
adequate capital for financing it should be assured. Unless the plan 
of financing will permit the purchase of necessary machinery, equip- 
ment, supplies, etc., when the plant is started, provide adequate work- 
ing capital, and enable additional equipment to be purchased, when 
needed, during the operation of the plant, sooner or later financial 
difficulties will be encountered. Complete estimates of the total 
capital investment should be obtained from reliable sources, and the 
plan of financing adopted should adequately provide for the raising 
or securing of the necessary capital funds. Large loans, bonded in- 
debtedness, or other liens against the organization should be avoided. 
No financial handicap should be placed upon the organization, for 
the problems to be met may be difficult enough without introducing 
unnecessary financial ones. In fact, the organization should be 
started under most favorable conditions and the problems of financing 
should be solved before the organization enters into the business of 
milk distribution. 

A fifth essential to the success of a milk- distributing plant, is the 
maintenance of high standards in the quality of the product handled 
and sold. The raw material received must be carefully produced 
under sanitary conditions, must be handled by modern up-to-date 
methods, and sanitary conditions must prevail in the plant. Without 
high quality in the product, customers are likely to become dis- 
satisfied and the business fail because of lack of patronage. 

Another essential is a sound business policy in conducting the busi- 
ness of the organization. Such a policy must be adopted by the 
board of directors, for without it the manager can not know that 
his action will meet with the approval of the board. An organiza- 
tion with a board of directors that has adopted a sound business 
policy may succeed with a mediocre manager, where otherwise it 
might fail. Likewise an organization with a most competent man- 
ager but having a board of directors which will not support a sound 



4 BULLETIIir 109'5, U. S. DEPARTMENT OF AGRICULTURE. 

business policy may be doomed to failure. It is obvious that the 
board should be composed of men with an understanding of sound 
business principles. 

MARKETING CONTRACTS. 

In cooperative milk-marketing organizations it has been found 
desirable for the business relations between the producers and the 
organization to be clearly defined in a marketing contract. By the 
terms of such contracts the producers agree to deliver to the organi- 
zation all the milk produced on their farms, except that required for 
farm or household use. The organization in turn agrees to sell and 
distribute the producers' product and to make returns therefor in 
accordance with specific provisions of the contract. Such contracts 
tend to give greater stability and permanence to the organization. 

METHODS OF FINANCING. 

Rather large investment in buildings and equipment are required 
in cooj^erative milk plants for the proper handling of milk and milk 
products. Definite methods of financing must be worked out care- 
fully and adapted to the form of organization to be employed. Co- 
operative milk-marketing organizations may be financed either with 
or without capital stock. In nonstock organizations the necessary 
capital may be obtained from membership fees, cash payments for 
certificates of indebtedness, or from loans made by the members, 
while in organizations with capital stock the necessary capital is 
secured by selling shares of stock. Cooperative milk-plant organiza- 
tions usually have been formed with capital stock, as producers are 
more familiar with this method. An equitable plan adopted by some 
organizations requires each producer to purchase shares of capital 
stock in proportion to the number of cows milked or the amount of 
dairy products to be marketed at the plant. 

In some organizations both common and preferred stock have been 
issued. Preferred stock ordinarily is entitled to dividends before 
any are paid on the common stock. The dividends on preferred 
stock usually are cumulative, and it is customary to withhold voting 
privileges from stock of this class. The plan of using both preferred 
and common stock may be advantageous in some organizations, es- 
pecially where it is necessary to sell stock to others than the mem- 
bers and the producers wish to retain control of the organization 
through ownership of common stock. However, it should be borne 
in mind that all the preferred as well as the common stock of asso- 
ciations that desire to come within the scope of the Capper- Volstead 
Act must be held by producers. 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 5 

A number of nonstock organizations have been financed through 
the sale of certificates of indebtedness. These certificates are sold for 
cash the same as capital stock. The rate of interest is fixed and date 
of maturity stated on the certificate. They may be sold to any one, 
since voting power is limited to members only. Usually the certifi- 
cates of indebtedness are issued in series which mature in from 1 to 
5 or 10 years with amortization coupons attached which mature an- 
nually. These certificates are paid with sums deducted monthly from 
patrons' checks and for which the patrons are issued new certificates 
annually. The interest on the certificates is considered an operation 
expense and is paid from the reserve fund established for this pur- 
pose. 

FORMING THE ORGANIZATION. 

If the establishment of a cooperative milk plant appears advisable 
after a very thorough survey has been made of the local situation, 
the actual work of forming the organization can be taken up actively. 
l*reliminary meetings of the prospective members should be held 
and the proposed plans of the organization thoroughly discussed at 
such gatherings. If the successful establishment of a plant seems 
feasible, an organization committee should be chosen at a called meet- 
ing of the prospective members. This committee should proceed 
with the formation of the permanent organization, including the 
drafting of suitable by-laws, a marketing contract, and plans for 
financing the proposed plant. 

Subcommittees of the organization committee may be selected to 
undertake various lines of work. Thus, there may be a subcommittee 
on membership and a subcommittee to obtain information on the cost 
of plant and equipment. The latter committee may find it beneficial 
to inspect the operation of plants already established. First-hand 
information regarding methods employed, difficulties encountered, 
and problems to be met in a new plant will be most useful and 
valuable. 

After the organization committee and its subcommittees have com- 
pleted their preliminary work, a meeting should be held at which 
the question of perfecting a permanent organization should be 
decided definitely. Wh^^re it is decided to establish a milk-distribut- 
ing plant, the various plans submitted by the organization committee 
should be discussed and approved with such changes as seem advis- 
able. Temporary directors should be elected at this meeting and 
authorized to proceed to incorporate the organization. 

INCORPORATING THE ORGANIZATION. 

The committee that works out the organization plans should obtain 
all information possible relating to the corporation laws of the State 
in which the organization is being formed, because the plan must fit 



6 BULLETIN 1095, U. S. DEPAETMENT OF AGEICULTURE. 

the requirements of the law under which the organization is to be 
incorj3orated. Many States have one or more special laws providing 
for the incorporation of cooperative associations, and it is usually- 
advisable to incorporate under a cooperative law wherever prac- 
ticable. 

Laws designed for noncooperative business corporations in many 
cases are not best suited to cooperative organizations, as such laws 
generally grant each share a vote and provide for dividends on 
capital stock. Equal voting rights and privileges in cooperative 
organizations are important and should be adhered to very closely 
in forming such organizations. 

The exact procedure to follow in incorporating an organization 
depends upon the provisions of the State law under which the 
organization is to be incorporated; consequently no general plan 
covering all details can be given. Legal counsel should be employed 
in obtaining the necessary legal information and in preparing the 
papers for incorporating the organization. 

The temporary board of directors may serve as incorporators, or 
a committee may be selected for this purpose. 

BY-LAWS OF THE ORGANIZATION. 

If by-laws have been approved by the milk producers at the gen- 
eral meeting 'they should be adopted after the incorporation has been 
completed. The organization then may undertake the objects for 
which it was established. The by-laws of a cooperative organiza- 
tion should clearly define the purposes for which it is organized and 
specifically provide for the management, financing, and conduct of 
its business. Local conditions and plan of financing and operating 
the organization should be taken into consideration in preparing the 
by-laws, in order that they may provide for the needs of the organi- 
zation. 

A suggested form of by-laws which may serve as a guide in the 
preparation of by-laws suited to the needs of cooperative milk-pro- 
ducers' organizations is given in the Appendix. Changes necessary 
to adapt them to local conditions and the requirements of State law 
should be made. 

OBTAINING A SUITABLE BUILDING. 

One of the first questions to be considered by an association is 
whether to erect a new plant or to rent a building temporarily until 
such time as a new building can be erected. Sometimes, when the 
amount of available capital is limited, it may be well to rent a build- 
ing, if a suitable one can be found, until the capital necessary for the 
new building can be raised. One of the important considerations, of 



COOPERATIVE MILK-DISTPJBUTING PLANTS. 7 

course, will be to ascertain if there is a suitable building available 
for the purpose. Not every building can be remodeled to fit the 
requirements of a milk plant, and in some cases the cost would be 
prohibitive. 

The building, in the first place, must be conveniently located. It 
must be so located that it will be easily adapted to the convenient 
receiving of the members' milk and the loading and unloading of 
the delivery wagons. Entrance from at least two sides of the build- 
ing is desirable. Location in respect to sanitation must also be con- 
sidered. Good air, good light, and good general surroundings are 
essential. The floors of the plant should be of concrete, and if the 
building does not have concrete floors, it should be so constructed 
that the floors can be concreted. It is important that the foundation 
be strong. The building must be capable of being so remodeled 
that a convenient plant arrangement for the conduct of the work 
can be secured. There are many factors to be considered in select- 
ing a suitable building in which to locate a milk plant and it is 
usually advisable to obtain the assistance of a man who has had plant 
experience. 

The erection of a new building at the beginning has many ad- 
vantages and is usually advisable if the capital is available. A new 
building of modern construction will serve as an advertisement, and 
if there is much competition it will be found that an up-to-date plant 
is a big asset. Such a plant will attract the attention of the public 
and will be a great aid in getting the business established. Visitors 
to such a plant are well impressed, and in this way new business is 
more easily procured. 

Unless a satisfactory building can be purchased at a saving of at 
least half of the cost of erecting a new building, together with the 
cost of the lot, it usually will be better to rent a building temporarily 
until a new one can be constructed, as the advantage accruing from 
the proper construction and arrangement of a new building would 
easily overbalance the difference in cost. 

LOCATION OF A MILK PLANT. 

If a new building is to be erected, the site should be carefully 
selected. Whether to erect a plant on an expensive site in the busi- 
ness section of the city or to go further out, where property is less 
expensive, is an important question to be decided. If much competi- 
tion is to be encountered, an attractive and prominent location is of 
value from an advertising standpoint. An attractive plant located 
in the down-town section of the city or on a prominent street is not 
only a good advertisement but often results in a large quantity of cash 
sales at the plant. However, it is not good policy to buy a very ex- 



8 BULLETIN 1095, U. S. DEPAETMENT OF AGRICULTURE. 

pensive site unless competition and the retail sales at the plant will 
be of considerable importance. In a small or medium-sized town the 
site should not cost as much as the building. In general, a site must 
be selected where good drainage and sewer arrangements can be had, 
as well as an abundant water supply and electricity for light and 
power. 

The advisability of selecting expensive property in the business 
section will depend on the local situation. As a general rule, this is 
unnecessary if a suitable location can be obtained a short distance 
away at a considerable less cost. 

TYPE AND CONSTRUCTION OF BUILDING. 

The type of building to be selected of course depends a great deal 
upon local conditions. It is desirable to have a building that is 
modern and sanitary in every way, both from the advertising stand- 
point and as regards economy and public health. 

In general, the building should be sanitary and up to date, attrac- 
tive in appearance inside and out, with a convenient arrangement of 
floor space. In selecting the materials for construction, local con- 
ditions must be considered. A permanent building is essential and 
a wooden structure is usually not advisable. Whether to use brick, 
concrete, or some other material will depend somewhat upon the local 
situation as to cost of materials and labor. Brick, concrete, and 
hollow tile finished with stucco on the outside and cement on the inside 
are the most common materials used. All of these materials are com- 
paratively permanent and can be constructed practically fireproof. 
They are much more desirable than wood, and the cost of upkeep and 
repair is much less. 

The floors in the plant should be of concrete and properly laid. 
Where cans and trucks are rolled constantly over the floor, iron plates 
may be embedded in the cement to protect the floor. Drainage pipes 
should be put in place before the floors are laid and sanitary traps 
should be installed in such places as will provide good drainage in 
the various rooms. 

Plenty of natural light is essential, and no expense should be spared 
in providing many windows. 

Good ventilation is also essential in a milk plant. While windows 
may provide satisfactory ventilation in small plants, medium-sized 
and large plants should have some system of artificial ventilation. 
This may be accomplished by such devices as exhaust fans, ventilating 
flues, and ventilating shafts. 

The type of building will depend on the site and on the equipment 
selected. The equipment, therefore, should be selected before the 
plans for the building are made. It is generally advisable to build 



COOPERATIVE MILK-DISTRIBUTING PLANTS. ' 9 

a large plant of about two to three stories, so that the milk may flow 
by gravity from the various pieces of equipment in the plant. There 
is very little advantage in having a plant of greater height than two 
and one-half or three stories unless the site is very expensive. 
The labor required to operate a plant of several stories is usually 
considerably greater than in a lower building because of the ne- 
cessity of having a foreman for each floor. Small plants may be only 
one story high, and one-story buildings can often be remodeled into a 
satisfactory milk plant with less labor required for their operation 
than in the case of a two-story plant. 

ARRANGEMENT OF THE PLANT. 

The rooms in the plant should be divided and laid out so that the 
plant operations can be carried on with the minimum of labor and 
machinery, and so that the milk may be handled in a sanitary manner. 
Plans should be drawn by a competent architect, showing the layout 
of the rooms and the location of the machinery and equipment. These 
plans should be carefully studied, and before the final arrangement 
is decided they should be submitted to the local health officials for 
approval. 

RECEIVING ROOM. 

The milk-receiving room should be separate from the other rooms 
and should be well screened to keep out flies. This room should 
be located so that the milk may be conveniently received direct from 
the producers' trucks. The floor of the receiving room should be on 
a level with the floor of the ordinary truck. A convenient arrange- 
ment is to have the floor of this room elevated about 3 or 4 feet, so 
that the milk may be readily received and dumped into the weigh 
can, from which it may flow by gravity to a receiving vat. If this 
is not feasible, the receiving vat may be lowered below the floor 
level. The receiving room should contain scales, weigh can, sample 
jars, etc. In the receiving room or in an adjoining room facilities for 
properly washing and sterilizing the cans should be provided, so 
that the cans may be returned to the producers in good condition. 
Apparatus of ample size should be provided for cleansing the cans 
quickly and thoroughly. 

WASHING AND STORAGE ROOMS FOR BOTTLES. 

The bottle-washing room should be so located that the empty 
bottles can be received as conveniently as possible from the delivery 
wagons. This room should be of ample size to provide space for the 
bottle-washing machine and plenty of room for the workmen. Where 
the bottles are held for a time before washing, the room must be 
108510°— 22 2 



10 



BULLETIN 1096, U. S. DEPAETMENT OF AGRICULTUEE. 



larger than where the bottles pass directly from the delivery wagons 
to the bottle washer. 

A clean bottle-storage room is of considerable advantage for 
storing bottles after washing. This room should be located between 
the bottle-washing room and the bottle-filling room. In this room 
the bottles are allowed to remain after washing until cooled, when 
they may be filled. It is important that there be no congestion either 
at the milk-receiving door or the door where the empty bottles are 
received. Therefore, these two doors should be widely separated. 

PROCESSING ROOM. 

The milk-processing room may contain the pasteurizing equipment 
and the bottle-filling apparatus, or the bottle filling may be done in a 
separate room. Where a bottle-storage room is not provided there 
must be space in the filling room for the empty washed bottles. A 
convenient arrangement may be accomplished by having the pasteur- 
izing equipment on a half-story or raised floor, so that the milk may 
flow from it by gravity through the cooler to the bottle-filling appa- 
ratus. On the floor above should be placed the milk-storage vats. 
Gravity flow of milk is preferable to the use of milk pumps. The 
only milk pump required with an elevated-floor arrangement is one 
to raise the milk from the receiving tank on the ground floor to 
the storage tank above. 

MILK-STORAGE ROOM. 

A well-insulated milk-storage room is necessary in all milk plants. 
This room should be insulated with about 4 inches of cork, with ce- 
ment on the inside and outside. It should be located so that the milk 
may pass directly into it from the bottling room and, at the same 
time, be convenient for loading the delivery wagons. The door 
should swing outward, in order to save refrigeration space, and it is 
well to have the room as nearly square as possible. The size of the 
room will depend on the quantity of milk to be stored. There should 
be enough room to store conveniently all the milk of one day's run 
with convenient working space. 

The following are the approximate sizes of milk-storage rooms re- 
quired for plants handling various quantities of bottled milk. 





«. 


Quantity 




of bottled 
milk 


Size of room. 


handled. 




Gallons. 


Feet. 


300 


8 by 8 


500 


10 by 10 


1,000 


12 by 15 


2,000 


IS by 20 


4,000 


24 by 30 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 11 

A convenient arrangement for loading the delivery wagons may 
be provided by having small doors placed in the outer wall of the 
milk-storage room, so that the wagons can be loaded directly at these 
doors. To do this the room should be placed next to an outer wall, 
with driveway for the delivery wagons. 

EQUIPMENT OF THE PLANT. 

Equipment for a milk plant must be carefully selected. In some 
cases used equipment can be purchased, but it is usually not a good 
plan to buy secondhand equipment unless it is in very good condi- 
tion. When a business is taken over, or when several small dealers 
combine, considerable used equipment is usually available. How- 
ever, much of this equipment may not be suitable or of the proper 
size or capacity, and it may be better to sell or discard it than to try 
to use it. Some of the equipment may be used for a short time until 
new equipment can be obtained; for example, a small bottle washer 
may be used until a larger and more suitable one can be purchased. 
Usually pasteurizers and bottle-filling machinery should be bought 
new, and much care should be used to procure the best available. Of 
course, secondhand bottles, cans, cases, etc, can be used. The advice 
of persons of ex|)erience is necessary when the purchase of second- 
hand equipment is contemplated or when new equipment is selected. 
The following are some of the points to be considered in selecting 
milk-plant equipment: 

(1) Simplicity. The number of working parts should be as few 
as possible to do the required work efficiently. 

(2) Ease of cleaning. There should be a minimum of inaccessible 
parts, for they make daily cleaning difficult. 

(3) Ease of sterilizing. It is important that all milk apparatus 
be sterilized daily. The more easily this can be done the more likely 
it is that the work will be done properly. 

(4) Ease and economy of operation. Unless a machine can be 
operated economically, it will be a liability to the user rather than an 
asset. If it can be operated easily much less attention will be re- 
quired. 

(5) Durability, Apparatus^of poor quality usually is most costly 
in the end ; durability is an important factor. 

(6) Initial cost. While cheap apparatus may cost the most in the 
end, it is not always necessary or advisable to buy the highest-priced 
equipment, 

(7) Efficiency, In the case of pasteurizers, efficiency in holding 
the milk at a certain temperature should be considered. It is very 
important in pasteurization that the milk be positively held at 145° F. 



12 BULLETIN 1095, U. S. DEPAETMENT OF AGRICULTURE. 

for 30 minutes. It is important that equipment of ample capacity to 
handle the maximum output of the plant be selected. However, the 
pasteurizers should not be so large that they will wear out and de- 
preciate before the business is developed to the point that large- 
capacity equipment is required. 

For small plants the work must be so arranged that men can be 
shifted from one kind of work to another, while in larger plants more 
specialization in the plant operations can be maintained. For this 
reason the equipment in small plants must be large enough to permit 
the pasteurizing and bottling to be clone in from two to four hours, 
leaving the remainder of the day for other work. 

LISTS OF EQUIPMENT. 

Below are lists of the principal equipment required for milk plants, 
grouped as follows: (1) Small plants, less than 250 gallons daily; 
(2) medium-sized plants, 250 to 1,000 gallons daily; and (3) large 
plants, over 1,000 gallons daily. 

(1) Equipment for small plants (less than 250 gallons) : 

Platform scale (double beam). 

Temperature recorder. 

Pasteurizing vat ( 100 to 300 gallons capacity ) . 

Tubular cooler (if milk is cooled in the vat, cooler may be eliminated). 

Small bottle filler (a filler designed to fill four bottles at a time is satis- 
factory). 

Bottle washer (consisting of a turbine brush with rinser and steamer). 

Bottle cases (about two sets of cases will be required). 

Cans (cans for delivery of milk to wholesale trade; farmers should pro- 
vide cans for bringing the milk to the plant). 

10 to 15 horsepower boiler. 

3 to 5 horsepower motor. 

Brine tank. 

Can wash sink with steam jet. 

Small separator (about 2,000 pounds per hour). 

Small churn (100 pounds butter capacity). 

Milk storage room (a room of about 6 by 8 feet provides enough space 
to store one day's supply of bottled milk). 

Babcock tester (12-bottle size). 

Steam and water hose with fittings. 

Steam and water piping. 

Milk pump (if gravity is used no pump is required). 

Sanitary milk piping and fittings. 

Belting, shafting, pulleys, hangers, etc. 

A supply of bottles, caps, washing powder, coal, etc. 

(2) Equipment for medium-sized plants (250 to 1,000 gallons) : 

5-beam platform scale or a dial scale. 
2-compartment weigh can. 
Receiving vat (200 to 400 gallons capacity). 
Sanitary milk pump (capacity 6,000 pounds per hour). 



COOPERATIVE MILK-DISTEIBUTTNG PLANTS. 13 

(2) Equipment for medium-sized plants — Continued. 

Clarifier (6,000 to 8,000 pounds per hour). This may be eliminated if a 
satisfactory filter or strainer is provided. 

Sanitary milk piping and fittings. 

Pasteurizing and cooling outfit (capacity about 4,000 pounds per hour, 
including recording thermometers and temperature control). 

1 or 2 automatic fillers and cappers (separate filler for buttermilk 
should be used). 

1 hydraulic bottle washer. 

1 small bottle washer with turbine brush. 

1 can washer, rinser, steamer and dryer. 

1 forewarmer. 

1 separator (2,000 to 4,000 pounds per hour). 

1 combined churn and butter worker (churning capacity 150 gallons of 
cream). 

1 butter printer, etc. 

1 vat with coil, for buttermilk (about 300 gallons). 

1 starter can. 
. 1 300-gallon cheese vat. 

1 drain rack. 

Trucks and conveyor track, 

1 5 to 10 ton refrigerator outfit with brine tank, brine pump, etc. 

1 steam boiler (20 to 40 horsepower). 

Motors (10 to 20 horsepower). 

1 steam engine (12 to 20 horsepower). Direct-connected motors may be 
used on some of the machinery and if desired all power may be pro- 
vided by motors. 

Chemical and bacteriological apparatus. 

Cans. 

Bottle cases. 

Shafting, belting, hangers, pulleys, etc. 

Steam and water piping and fittings. 

Steam and water hose and fittings. 

Supplies of bottles, caps, washing powder, etc. 

(3) Equipment for large plants (more than 1,000 gallons). 

5-beam platform scales or dial scale. 
1 can drainer. 

1 double-compartment weigh can or quick-dumping weigh can. 

2 receiving vats (400 to 600 gallons each). 
Sanitary milk pump. 

Sanitary milk piping and fittings. 

1 forewarmer. 

1 or 2 clarifiers (8,000 to 12,000 pounds capacity) or an efficient filter. 

1 or 2 insulated milk-storage tanks. 

1 or 2 separators (8,000 to 12,000 pounds capacity). 

Pasteurizing and cooling outfit (capacity 6,000 to 10,000 pounds per 

hour), including recording thermometers and temperature control. 
.1 small pasteurizer for cream. 

1 small tubular cooler. 

2 to 4 automatic fillers and cappers. 
1 large hydraulic bottle washer. 

1 small bottle washer with turbine brush. 
1 can washer, rinser, steamer, and drier. 



14 BULLETIN 1095, U. S. DEPARTMENT OF AGEICULTURE. 

(3) Equipment for large plants— Continued. 

1 combined churn and butterworker (churning capacity 300 gallons of 

cream). 
Butter printer, ladles, packers, etc. 
Trucks and conveyor track, 
1 starter can. 
1 special exhaust-steam heater and storage tank (to supply hot water for 

pasteurizing and washing purposes). 
1 800 to 600 gallon ripener. 

1 to 2 cheese vats (300 gallons capacity). 

2 drain racks. 

Curd knives, curd pails, paddles, and whey strainer for cottage-cheese 

making. 
Buttermilk vats (300 to 800 gallons capacity). 
Refrigerating equipment (20 to 40 tons), with compressor, condenser, 

brine tank, brine pump, and all necessary piping and fittings. 
Boilers (60 to 200 horsepower). 
Engine (40 to 80 horsepower). 
Motors (30 to 100 horsepower). 
Milk cans, bottles, and cases. 
Belting, shafting, pulleys, hangers, steam and water piping and fitting, 

etc. 
Chemical testing apparatus. 
Bacteriological testing apparatus. 

OFFICE EQUIPMENT. 

Besides the equipment listed, office equipment will be required. 
Small plants require only a desk with chairs and possibly an adding 
machine, check protector, and a safe. Large plants require, in addi- 
tion, typewriters, computing machines, addressing machines, filing 
cabinets, and most of the equipment required in a modern business 
office. 

DELIVERY EQUIPMENT. 

The delivery equipment required depends on the kind of trade 
served and its accessibility. Automobile trucks often may be used 
economically in serving wholesale trade. Where considerable terri- 
tory has to be covered and for very scattered retail trade the auto- 
mobile may be used economically. Use of horse and wagon, however, 
is the most common and satisfactory method of delivering to retail 
trade. It has many advantages over the automobile. One man can 
deliver a load of milk from a horse-drawn wagon, but usually at least 
one extra man will be required on an automobile truck. The constant 
stopping and starting necessary on a retail milk route is not favorable 
to the use of an automobile for such delivery, although recently 
electric- driven trucks are giving economical service. 

The quantity of goods that can be delivered from a wagon or 
truck depends primarily on how scattered the trade is, the method 



COOPEKATIVE MILK-DISTRIBUTING PLANTS. 



15 



of delivery, whether many flights of stairs must be climbed, etc. 
In the ordinary city, where there is more or less competition, about 
250 to 300 quarts of milk, with the usual quantity of cream and 
other dairy products, are commonly carried on a retail wagon. For 
wholesale trade one delivery outfit will handle 500 to 1,500 quarts, 
depending on the type of streets, distance apart of the customers, 
and similar factors. 

INVESTMENTS IN PLANT AND EQUIPMENT. 

If a building is rented or bought it must be remodeled to fit the 
requirements of the business and this remodeling will cost, depend- 
ing on the size and condition of the building, from $500 to $5,000 
or more. The rental of a building will, of course, depend upon local 
conditions, location in the city, on size of building, etc.-, but this 
will usually vary from $30 to $150 per month. 

The money that must be invested in a new building will depend 
on the quantity of milk to be handled, materials of construction 
used, cost of labor, local conditions, etc. Table 1 shows the invest- 
ments in plant building at 27 representative producers' milk plants 
of various sizes located in various cities throughout the country. 
While there are wide variations in cost, caused by lack of standardi- 
zation of buildings, varied materials used, and other factors, these 
figures will give a general idea of the approximate amount of money 
that will have to be invested in a building. 

The cost of milk-plant equipment depends on the quality and 
size and the cost of transportation. In Table 1 are also shown the 
investments in plant equipment in 27 producers' cooperative plants 
of various sizes. 

Table 1. — Investments in plant and equipment at 27 producers' cooperative milk 
plants, arranged according to quantity handled. 



Size of plant (gallons handled daily). 



500 gallons or less. . . , 

501 to 1,000 gallons.. 
1,001 to 2,000 gallons 
2,001 to 8,000 gaUons 



Num- 
ber of 
plants. 



27 



Average 
number 

gaUons 
handled 

daily. 



413.9 

793 
1,760 
4, 199. 66 



1, 602. 7 



Investment in plant. 



Average per 
plant. 



1 SIO, 000. 00 

2 18, 977. 87 

2 22, 515. 76 

94, 750. 25 



36, 339. 02 



Average 

per 
gaUon. 



^ $25. 97 

2 22. 77 

2 11. 69 

19.14 



19.45 



Investment in plant 
equipm.ent. 



Average 

per 
plant. 



$11,811.21 
25, 208. 68 

3 20, 933. 77 
60, 960. 15 



26, 624. 28 



Average 

per 
gallon. 



$28. 73 
31.79 

'11.89 
12.34 



16.97 



1 Only 5 plants in this group.had buildings of their own. 

2 One plant in this group rented a building. 

3 One plant in this group handled mostly all wholesale. 



16 



BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE. 



Table 1. — Investments in plant and equipment at 27 producers' cooperative milk 
plants, arranged according to quantity handled — Continued. 



Size of plant (gallons handled daily). 



Num- 
ber of 
plants. 



Investment in 
delivery equipment. 



Average 
per plant. 



Average 

per 
gallon. 



Total investment. 



Average per 
plant. 



Average 

per 
gallon. 



500 gallons or less . . 

501 to 1,000 gallons. . 
1,001 to 2,000 gallons 
2,001 to 8,000 gallons 



«2, 893. 75 
11, 185. 79 
7, 146. 06 
19, 475. 25 



1 $6. 66 
14.07 
4 4. 33 
'5.21 



2 S21,433. 44 

3 49, 985. 43 

3 -i 49, 482. 13 

5 155, 136. 34 



i$51.70 
'63.04 

3 4 28. 11 
5 36. 97 



8, 556. 39 



7.02 



63, 749. 18 



39.54 



The average investment in plant buildings at 84 privately owned plants ranging in size from 100 gallons 
to over 10,000 gallons daily was $24,183, and the average investment per gallon handled daily was $13.27 
based on 1916 prices. See U. S. Department of Agriculture Bulletin No. 849. 

The average investment in plant equipment at 125 privately owned plants ranging in size from 100 gal- 
lons to over 10,000 gallons daily was $24,475, and the average per gallon handled daily was $11,59, based on 
1916 prices. See U. S. Department of Agriculture Bulletin No. 890. 

1 One plant in this group had no delivery system. 

2 Only 5 plants in this gi-oup had buildings of their own. 
^ One plant in this group rented a building. 

* One plant in this group handled mostly all wholesale. 
^ Two plants in this group had no delivery system. 

Below are estimates of the approximate cost of tlie principal plant 
equipment for plants of various sizes. These figures include the cost 
of the principal equipment required, together with an initial supply 
of cans, bottles, cases, etc. 



2, 000-gallon plant, $25,000 to $35,000. 
4, 000-gallon plant, $45,000 to $60,000. 



100-gallon plant, $1,500 to $2,000. 

500-gallon plant, $4,000 to $6,000. 

1, 000-gallon plant, $15,000 to $25,000. 

The following is an estimate of the cost of delivery equipment, not 
including stable or garage. 



2, 000 gallons, $10,000 to $15^000. 
4, 000 gallons, $20,000 to $30,000. 



100 gallons, $500 to $700. 
500 gallons, $3,500 to $4,000. 
1, 000 gallons, $5,000 to $8,000. 

In Table 2 are given estimates of the amounts of money required 
to establish and operate plants of various sizes. While these figures 
show great variation, a general idea of costs maj^ be obtained from 
them. 



Table 2. 



-Estimated amounts of money required to establish and operate plants 
handling various quantities of milk daily. 



Number of gallons to be handled 
daily. 


Building. 


Rent of building 
per month. 


Plant equipment. 


Delivery 
equipment. 


100to250 


SI, 500 to $6, 000 
4, 000 to 10, 000 
10, 000 to 18, 000 
15, 000 to 25, 000 
18, 000 to 50, 000 


$25 to $50 

40 to 75 

60 to 100 


$1, 500 to $5, 000 
3,000 to 8,000 
6, 000 to 20, 000 
15, 000 to 35, 000 
25, 000 to 60, 000 


$500 to $2, 000 


250 to 500 


1, 200 to 3, 500 


500 to 1,000 


2, 500 to 7, 000 
5, 000 to 14, 000 
10, 000 to 28, 000 


1,000 to 2,000 


2,000 to 4,000 









COOPEEATIVE MILK-DISTRIBUTING PLANTS. 



17 



Table 2. — Estimated amounts 0/ money required to estahlish and operate plants 
handling various quantities of nvUTc daily — Continued. 



Nmnber of gallons to be handled daily. 



100 to 250.... 
250 to 500.... 
500 to 1,000. . 
1,000 to 2,000. 
2,000 to 4,000. 



Oflace equipment. 



S50 to $300 

200 to 600 

500 to 1,000 

1,000 to 1,800 

1,500 to 2, 500 



Worlring capital. 



$300 to S750 

750 to 1, 500 

1,500 to 3,000 

3,000 to6,000 

6,000 to 12,000 



Total. 



$3, 8.50 to $14, 050 
9, 150 to 23, 600 
20, 500 to 49, 000 
39, 200 to 81 , 800 

60, 500 to 142, 500 



For detailed information regarding construction, arrangement and equipment of city milk plants see 
U. S. Department of Agriculture Bulletins Nos. 849 and 890. 

MANAGEMENT OF MILK DISTRIBUTING PLANTS. 

The success of business organizations is largely dependent upon 
competent management. A milk-distributing plant is no exception 
to the general rule. In fact, milk distribution is a business of many 
details and success is dependent upon the ability of the manager to 
organize and conduct the business so that every detail is properly 
performed. 

In cooperative milk-distributing organizations, the necessary legal 
and supervisory authority is vested in the board of directors, who 
are elected by and from the members or stockholders. The business 
management and supervision of the milk-distributing plant is in- 
trusted by the board of directors to the business manager. Where 
the business is large and it is impossible for the manager to supervise 
personally each operating branch, superintendents, foremen, or man- 
agers of the various departments are employed. Thus the operation 
of a milk-distributing plant may be divided into such departments 
as buying, receiving, processing, bottling, manufacturing, account- 
ing, and sales. In such an organization of the business of a milk- 
distributing plant, the manager must have superior executive and 
administrative ability, so that the highest possible standard of effi- 
ciency may be obtained in each department and each department's 
activities correlated with the others, to the end that a unified, sys- 
tematized, efficient operation of the entire business may prevail. 

QUALIFICATIONS, DUTIES, AND RESPONSIBILITIES OF 

MANAGERS. 



The qualifications for a milk-plant manager in education, training,, 
and experience depend in a large measure upon his duties and re- 
sponsibilities, which necessarily vary with the size of the business. 
Ordinarily, he is expected to formulate the policy and basis for de- 
termining prices at which different grades of milk, cream, and by- 
products are to be sold to different classes of trade. The manager 
108510°— 22 3 



18 BULLETHsT 1095, U. S. DEPARTMENT OF AGEICULTURE. 

should obtain all available information regarding the present and 
prospective local market demands and sources of market supply. He 
should formulate and execute plans for the most economical methods 
of collecting, processing, and manufacturing by-products, and of 
selling and distributing the products of the plant. In order that he 
may justly be held responsible for the successful conduct of the busi- 
ness as a whole, he should have authority to employ and discharge 
all labor. 

In small and medium-sized plants, where it may be necessary for 
the manager to give direct personal supervision to the many minor 
details, and where he may be required to put his hand to any task, 
it is obviously desirable for him to be thoroughly experienced and 
able to handle every physical and mechanical detail. In larger plants 
the responsible supervision of the detail work in the milk-handling 
department is intrusted to a plant superintendent or foreman, and 
the larger duties of the manager are executive and administrative, 
having to do more with questions of business policies which require 
a knowledge and training in business administration than with fac- 
tory detail which requires technical training supplemented by fac- 
tory experience. It is always desirable that the manager have an 
extended knowledge of, and be familiar with, detail plant operations, 
in order that he may be fully conversant with the problems of the 
various departments of the business and be able to formulate plans 
and policies with the various superintendents for the more efficient 
and economical conduct of their departments. 

The duties of a milk-plant manager in small plants obviously may 
be numerous and varied, while in larger plants they become more 
executive in character, with the routine and detail duties performed 
by other employees. In small plants the overhead costs, including 
salaries of manager and employees, must be kept at a minimum; 
hence the manager may be obliged to perform much manual labor in 
addition to supervising the work of other employees. 

The manager of a milk-distributing plant has perhaps greater re- 
sponsibilities than any other employee. In small plants he is obliged 
to assume full responsibility for all work done, while in larger plants 
this responsibility may be shared with the superintendents and fore- 
men. 

The manager in every plant, whether large, medium, or small, 
must be in close touch with each operating department, for responsi- 
bilities can not be assumed safely unless the activities of the depart- 
ments are conducted in accordance with well-defined policies. He 
must also have access to reports or records of the entire business, in 
order to formulate plans and policies for its successful conduct. 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 19 

SELECTING A MANAGER. 

In considering the employment of a milk-plant manager, his 
qualifications in reference to all factors which make for the success 
of a milk- distributing plant should be considered. Where the 
organization is newly formed and a plant must be constructed and 
equipped, it is usually desirable to employ the manager early, so that 
his advice in matters of arrangement and equipment may be ob- 
tained and that he may have ample time to determine upon best plans 
and policies for the conduct of the business before it is undertaken. 

In selecting a manager due consideration should be given by the 
board of directors to the local conditions and problems to be met. 
Previous successful experience along business lines of the same or a 
similar character is a valuable asset, as are dairy-school training and 
a knowledge of the manufacture of by-products. 

The employment of a manager largely because he is willing to ac- 
cept a lower salary than others is a mistake to be avoided. Quality 
of service and price should be as much coordinated in the person of a 
competent manager as in the product produced and sold by the milk- 
distributing plant. Experience in the sale or manufacture of milk 
by-products, such as butter, cheese, ice cream, and condensed milk, 
does not necessarily qualify a man for the position of manager of a 
market-milk distributing plant. Milk by-products are less perishable 
than milk and their sale does not involve such a highly organized 
house-to-house distributing system as market milk. By-product 
marketing does not often afford experience in retail-route adminis- 
tration nor in the intensive development of new business such as is 
required in a milk plant. Competent milk-plant managers are in 
active demand everywhere. In small plants they receive salaries of 
$6 to $10 per day or above, which in fact are scarcely above those 
of capable workmen, whose responsibilities may be considerably less. 
Managers' salaries in large plants range from $2,400 to $6,000 and 
above per annum (either straight salary or salary and commis- 
sion) and are based not so much on the size of the business as on the 
results or success obtained. 

Frequently such agencies as the State colleges of agriculture, State 
dairy and food commissioners, the United States Department of 
Agriculture, dairy and creamery equipment and supply houses, and 
dairy trade journals have knowledge of persons capable of managing 
milk plants and are able to give assistance in locating them. They 
also may be secured from the ranks of successful small-plant mana- 
gers or department superintendents in large plants. 



20 BULLETIN 1096, U. S. DEPARTMENT OF AGRICULTUEE. 

PROBLEMS IN OPERATING MILK-DISTRIBUTING PLANTS. 

The foregoing statement regarding the duties and responsibilities 
of a milk-plant manager indicates that he may have many problems 
with which to deal. For the purpose of separate discussion of the 
more important phases of each, they will be considered under the fol- 
lowing classification : 

(1) The securing of an adequate and proper milk supply. 

(2) EiScient and economical plant operation. 

(3) Sales policies and methods of market distribution. 

As consideration is given to each of these, it is well to keep in mind 
that the manager is responsible to the board of directors, and he 
should cooperate with it on all matters involving business policies and 
seek to obtain counsel and advice in formulating them. 

THE SECURING OF AN ADEQUATE AND PROPER MILK SUPPLY. 

Three problems arise in every milk plant, in obtaining a milk sup- 
ply. These are (1) source of an adequate supply, (2) maintaining 
proper quality in the supplies received, and (3) determining upon an 
operating policy which largely eliminates financial risks and losses. 

In cooperative plants, the larger part of the supply is usually re- 
ceived from the patron members, but usually not to the entire exclu- 
sion of the product of nonmembers. A closed organization against 
nonmembers is often not desirable, even though patron members may 
be able to furnish an adequate supply. By providing a satisfactory 
market for dairy products, tlie establishing of com'peting plants is 
discouraged and production is encouraged. In practically every 
plant it is necessary to operate a by-products department, in which 
the surplus supplies may be manufactured into butter, cottage cheese, 
and other products. Although by-products may be sold ordinarily 
at lower net prices and on narrower margins than market milk, the 
overhead costs of the plant may be reduced by increasing the volume 
of product handled. Also, the handling of a surplus allows op- 
portunity for expansion of sales in the milk department. 

To obtain adequate supplies of milk of highest quality, .country 
collecting routes are often employed in reaching patrons in neighbor- 
ing sections, and receiving and cooling stations are operated at points 
irom which delivery is made by rail or by motor truck. Certain ad- 
vantages are often obtained by the operation of collecting routes, for 
the milk is picked up at the farm and needless duplication in delivery 
by individual producers is eliminated. 

The ordinary charge for collecting, which includes the return of 
empty cans, may range from 1 to 5 cents per gallon, depending upon 
local conditions. 



• COOPERATIVE MILK-DISTRIBUTING PLANTS. 21 

Closely related to the problem of obtaining an adequate supply is 
that of maintaining proper quality in the supplies received. Much 
may be accomplished in improving the quality of the supply received 
by educational work among the producers and by offering incentives 
in the price paid the farmer for the production of the better qualities. 
Constant attention, both at the plant and on the farm, should be 
given to the quality of milk furnished by each producer, and frequent 
tests should be made to determine the purity and butter-fat content. 
Premiums based upon the butter- fat content, absence of sediment or 
visible dirt, and low bacterial count may be used to encourage de- 
livery of highest quality. The written contracts entered into by 
the organization and its producers may specify the temperature to 
be maintained and time of delivery, as well as the time, frequency, 
and basis of payment. 

The consuming public is coming more and more to appreciate 
high quality in dairy products and is demanding it. Poor quality 
is frequently the cause of loss of patronage and failure of milk-dis- 
tributing plants. High quality is the first essential in obtaining and 
maintaining patronage. It begins at the farm and must not be neg- 
lected either there or at any point between the producer and con- 
sumer. Good quality and good service are essential to obtaining an 
increased business. 

In cooperative milk-distributing plants the problem of determining 
upon a satisfactory price agreement with the producer should not 
be difficult, since price policies are largely determined by the board 
of directors in conference with or as representatives of the patron 
members. Furthermore, an agreed margin between producer and 
consumer prices may be established and any surplus arising may be 
distributed back to the producers on a pro rata basis-, or, what is per- 
haps better, the plant may be operated on a net-return basis. 

Although at some producers' cooperative milk-distributing plants 
the practice of purchasing the milk from the producer at a stipulated 
price is followed, the plan of prorating the proceeds for certain 
periods to the patrons in accordance with raw materials furnished, 
after deducting necessary charges for operating expenses and re- 
serve, is to be preferred. The producer who realizes that he is a part 
of an institution which is truly cooperative should be in hearty ac- 
cord with this method. If the milk is purchased outright at a definite 
price, the margin between this price and that charged the consumer 
on account of unforeseen conditions may not be sufficient to provide 
for the expense of operation. It is impossible at times to foretell 
how much of the milk delivered during any month will be required 
for the whole-milk trade and how much must be manufactured into 
by-products. While an organization that purchases the milk from 
108510°— 22 4 



22 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE. • 

the j)roducer might suffer a loss under such circumstances, the pro- 
ducer would not be a gainer, because, being a part of the organization, 
he would have to bear his part of the loss eventually. 

The advantages of the truly cooperative method of payment, that is, 
prorating the net proceeds in accordance with raw materials 
furnished, should be carefully considered, for under this method 
questions of surplus milk may be adjusted without difficulty- Further- 
more, the prorating of net proceeds has been employed successfully 
by many other cooperative organizations, such as cooperative cream- 
eries and cooperative fruit and vegetable marketing organizations, 
and should be equally satisfactory when used in cooperative milk- 
distributing plants. 

EFFICIENT AND ECONOMICAL PLANT OPERATION. 

Internal economy in plant operation is a detail feature of business 
management largely dependent upon the systematic organization, 
ability, and ideals of the employees, the arrangement and construc- 
tion of the plant, and the arrangement, capacity, and efficiency of the 
equipment. The importance of proper plant construction and equip- 
ment has been previously discussed and should not be overlooked 
in the construction and equipment of new plants or the remodeling 
and equipment of old ones. 

Systematic plant organization, with competent, able, and willing 
employees, is an important factor in obtaining efficient and economical 
plant operation. Every part of the work should be properly coordi- 
nated, to the end that needless waste of supplies and labor may be 
eliminated. Plants of sufficient size to warrant the employment of a 
plant foreman or superintendent should have one. The duties of a 
plant foreman or superintendent are largely supervisory, directing 
the employees in the plant in the proper performance of their duties, 
whether it be in weighing, testing, or inspecting the supplies received, 
pasturizing and bottling the milk and cream, and washing and steri- 
lizing the bottles, vats, or plant equipment. In plants where a plant 
engineer is not regularly employed, he supervises the proper operation 
of the boiler, engine, motors, and refrigerating equipment, and 
whatever detail work is done in the holding of products in the re- 
frigerator or cold-storage room for delivery on routes, or in the 
manufacture of by-products. It is obvious that competent supervi- 
sion with systematic organization and high ideals are essential for 
the most efficient and economical operation of a milk plant. 

SALES POLICIES AND METHODS OF DISTRIBUTION. 

Local market conditions must be the chief deciding factor in de- 
termining the sales policies and methods of distribution in a milk- 
distributing plant. Quality, however, should be the first considera- 



COOPEKATIVE MILK-DISTRIBUTING PLANTS. 23 

tion in the sales policies. A deep cream line on bottled milk and the 
thickness or viscosity of bottled cream are important factors in de- 
veloping new business. A deep, distinct cream line often outweighs 
all other considerations with consumers, since to them it is a visible 
and tangible evidence of quality and a daily indication of the business 
standards of the company. It therefore is important not to diminish 
the cream line on the bottled milk by the adoption of a low butter- fat 
standard or by the selection of poor pasteurizing equipment or by 
improper processing methods. 

In establishing a new plant it is important that outlets of sale be 
developed and methods of distribution be determined before delivery 
equipment is purchased or contracts for large supplies of milk are 
miade. In this matter it is well to proceed carefully and cautiously, 
for if complete equipment for an extensive system of retail distribu- 
tion be purchased and it is later found advisable to employ largely a 
wholesale system through retail stores, not only will much of the 
equipment be unnecessary, but it will not be suitable for wholesale 
delivery. A thorough canvass of the market situation should be 
made, including the trade demands and requirements, and when 
profitable outlets are doubtful the establishment of the plant should 
be postponed until they are assured, 

A nucleus for retail and wholesale business may be secured by 
consolidation of routes discontinued by the patron members or by 
the purchase of the business and good will of independent dealers. 
The initial operation of a milk-distributing plant is usually the most 
critical period in its existence, and failure to solve the problem of 
sales organization and methods may result in insolvency unless 
adequate capital has been provided to carry the organization along 
until sufficient sales business has been developed to cover the heavy 
overhead costs and make possible the development of a profitable 
business. 

The channels of distribution may be classified as follows : 

(1) Direct to consumer by house-to-house delivery. 

(2) To consumers through retail stores. 

(3) To consumers through hotels, cafes, refreshment stands, etc. 

(4) To other dealers who may employ the previously mentioned 

channels. 
The direct-to-consumer channel of distribution by house-to-house 
delivery is most expensive, although a larger cash return is obtained, 
as higher prices are charged, and usually a larger permanent business 
may be obtained, since a satisfied customer may be made a permanent 
one. Then, too, delivery direct to consumers' doors eliminates cer- 
tain competition which may result from sales to retail stores. Direct- 
to-consumer delivery has certain obvious advantages, and where the 



24 BULLETII^ 1095, U. S. DEPARTMENT OF AGRICULTURE. 

retail-route organization may be perfected to the point of permitting 
large loads (350 to 450 quarts) the overhead costs may be reduced 
to a minimum. 

Distribution through retail stores is a channel employed wholly 
or in part by milk- distributing plants in many cities. Its advantages 
are lower costs of delivery expense and usually lower prices to con- 
sumers, especially at cash-and-carry stores. Its disadvantages con- 
sist of increased competition in selling, and the inconvenience, time, 
and effort required by consumers to obtain their daily supplies. 

Hotels, restaurants, cafes, and refreshment stands ordinarily buy 
both bulk and bottled goods at wholesale prices, which range lower 
than retail prices. 

Sales to other dealers, who operate either or both retail and whole- 
sale routes, is a method of distribution employed by some milk plants. 
Such sales are at wholesale and may be made to independent dealers. 

Economy in retail-route distribution is dependent upon reduction 
of route mileage and increase in size of load handled by each route 
man and upon the extent that the sales organization is able to obtain 
greater efficiency. Endless duplication of equipment, excessive over- 
head expense, and needless street travel by many route men of com- 
peting distributing plants have been pointed out as a great waste in 
milk distribution. This could be eliminated by a centralized system 
of distribution, with one plant handling the city's entire supply. 

The average load carried on retail routes averages usually from 
250 to 300 quarts per day, while in exceptional cases as many as 
350 to 400 quarts are delivered from one retail wagon. However, it 
is entirely possible for one route man, serving all customers on both 
sides of the street in closely settled sections of cities, to average 400 
or more quarts daily. 

An efficient delivery system is just as important to the success of 
a milk plant as is the quality of its products. Retail routes are 
usually operated by a delivery man using a one-horse retail wagon 
or a light motor truck. A retail delivery man, under ordinary con- 
ditions, is able to supply 200 to 400 customers a day. Four to 10 
routes are generally supervised by a route foreman, and in large com- 
panies a sales manager supervises the work of the foremen. Credit 
men, solicitors, collectors, loaders, and checkers are employed in some 
delivery organizations. 

In larger milk plants, operating five or more routes, it is commonly 
advisable to place the delivery system under the supervision of a 
sales manager, with route foremen in charge of a number of routes, 
say from 5 to 10. The sales manager supervises the route foremen 
and such additional employees as solicitors and collectors, while the 
plant superintendent supervises the loaders and checkers. 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 25 

In small plants the general manager assumes the responsibility 
of the sales manager and depends upon the plant superintendent to 
supervise the loaders and checkers and the route foremen or route 
men for the proper delivery service. 

In the larger plants wholesale milk is generally sold on routes that 
handle wholesale orders exclusively, and retail milk is distributed on 
exclusively retail routes. Although both the wholesale and retail 
routes may cover the same territory, separate deliveries are made, 
because a different kind of service and different hours of delivery are 
required by wholesale and retail trade. The separation of wholesale 
and retail sales also simplifies accounting, balancing of load sheets, 
and the checking of returned bottles and cans. In smaller plants the 
routes usually handle both wholesale and retail milk on the same 
wagons. 

In cities located in the northern part of the country daylight deliv- 
eries are made throughout the spring, fall, and winter seasons, and 
in the sunmier deliveries are usually made before daylight. Where 
one company handles practically all the city distribution, it may be 
possible to maintain a system of daylight delivery throughout the 
year. In some southern cities it is customary for milk dealers to 
make two deliveries a day. 

ROUTE SALESMEN AND DELIVERYMEN. 

The success of any mercantile business depends upon its ability to 
sell goods. The successful sale of milk through milk plants depends 
upon the efficiency of its sales methods. After the general sales pol- 
icy of a milk plant is approved by the board of directors the manager 
must determine the methods to be employed in putting it into opera- 
tion, while the actual selling is intrusted to the sales and delivery 
organization. 

The route men of a modern milk company are more than delivery 
men. They are, in fact, business representatives who by their rela- 
tions to the customers, by their speech, and by their personal appear- 
ance express the general attitude of the company toward the public 
in business standards and business ideals. Good will may be either 
developed or destroyed by the employment of the right or wrong 
kind of route salesmen. 

Eoute salesmen and delivery men may come from many different 
sources. They may vary in age from 18 to 45 years, may be inex- 
perienced, with great or small capacity for self-development; or 
they may, on the other hand, be experienced and efficient milk 
salesmen. 

Ability to read and write, keep a route book and daily report sheet 
correctly, understand the instructions given, and appreciate the im- 



26 BULLETIN 1096, U. S. DEPARTMENT OF AGRICULTUKE. 

portance of personal cleanliness are qualifications that should be 
required. With such qualiiScations and a good physique as a foun- 
dation the possibility of future development into a successful sales- 
man is mainly a problem of organization of the delivery system, A 
company that does not have a well-formulated standard of service or 
that neglects to train its route men is more than likely to have just 
as many different stan,dards of service as it has route men. 

The pay of a route salesman must be commensurate with the 
amount and kind of work required of him. As a general rule the 
salary of a salesman should compare favorably with the pay of a 
skilled workman or mechanic. A route salesman who sells 400 
quarts daily and makes an effort to build up his route is rendering a 
service of a higher order than a driver or teamster, and unless he 
is adequately paid he will eventually seek other employment. The 
salaries of efficient milk salesmen vary from $25 to $50 per week. 
A constantly changing personnel of dissatisfied route salesmen pre- 
cludes efficiency in satisfactory delivery service. The premium or 
commission system of payment, in which a bonus is offered to sales- 
men for new customers obtained and for promptness in the collection 
and return of bottles in addition to basic salary, is the usual method 
of paying salesmen for efficient service and encouraging them to put 
forth their best efforts. 

Because of the many disagreeable features of route-delivery work 
there is a tendency among route men to look upon the work as a tem- 
porary job until more agreeable employment is obtained. This tend- 
ency is often further encouraged by the indifferent attitude of the 
company toward the route men. Even companies which maintain a 
most liberal policy toward their salesmen and pay adequate salaries 
report that only about 50 per cent of their route force can be consid- 
ered permanent. 

Adequate salaries, liberal commissions, and a bonus system of pay- 
ment, convenient working equipment, and a reasonable amount of 
time off each month are strong inducements to route salesmen to put 
forth their best efforts and to continue permanently in delivery work. 

Because the net profit on a bottle of milk is usually a small frac- 
tion of its selling price, the reduction of credit losses to a minimum 
is of more importance than in most other lines of business. The 
advantages and disadvantages of various credit systems, and especi- 
ally their adaptability to local conditions, should be investigated 
before any one of them is adopted. 

The choice of a cash or credit system, or a modified form of such, 
will depend upon competitive conditions, prevailing trade practices, 
and the management of an effective sales organization and distribut- 
ing system. Reasons for and against may be given for each, but, in 
general, cash systems have been found to be most economical of op- 



COOPERATIVE MILK-DISTRIBUTTNG PLANTS. 27 

eration and losses due to extension of credit are eliminated. The 
two prevailing systems are: (1) Cash (in advance from retail trade, 
in which payment for coupon books or tickets is made before the 
milk is delivered, or on delivery from wholesale trade) ; and (2) 
charge accounts, where collections are made weekly, semimonthly, or 
monthly. 

The principal advantages of the cash system are, first, the elimina- 
tion of uncollectable accounts ; second, the elimination of the expense 
of billing and collecting; third, the reduction of bottle losses. Its 
disadvantages are the first cost of tickets and the annoyance to 
patrons in giving the deliveryman the proper tickets at the time of 
delivery. 

The advantages of the charge system are : First, patrons are not in- 
convenienced by the use of tickets; second, delivery work is facili- 
tated, because the deliveryman is not obliged to collect or check up 
the tickets ; third, it is a convenient method of extending credit. The 
disadvantages of the charge system are : First, the expense of book- 
keeping ; second, the loss of bad accounts ; third, the higher and more 
expensive order of salesmanship required on the part of the delivery- 
man for billing and collcting than in either the cash or cash-in-ad- 
vance system ; fourth, necessity for the service of extra collectors and 
credit men. 

METHODS OF INCREASING SALES. 

In new, as well as in old-established plants, it is necessary to be al- 
ways on the alert for new business. Customers are continually leav- 
ing the city or moving to other parts of it and new residents are 
constantly moving in. Various advertising methods may be em- 
ployed, the attending success depending upon the care with which 
they are planned and their timely application. The most effective ad- 
vertising is of the positive sort or that which emphasizes the health- 
fulness and food value of milk. Such advertising may be in the form 
of newspaper articles, billboards, posters, circulars to patrons, and 
display advertising. 

Many milk-distributing plants have offered incentives to their sales 
force in increasing and extending trade by paying additional com- 
missions or bonuses for new customers, returned bottles, volume of 
business, collections, or total route sales, as part of the routeman's 
salary. Some firms employ the policy of consistently extending their 
business by consolidation with or purchase of the business of com- 
petitors. Where the competitor's customers are mostly within terri- 
tory already covered and can be reached by existing routes, or are 
in new territory and a nucleus of a route is desired to which other 



28 BULLETIN 1095, U. S. DEPAETMENT OE AGRICULTUEE. 

customers may be added, this method may be profitable, provided the 
price paid is not exorbitant. Soliciting may be employed where the 
house-to-house canvassing seems desirable. 

COSTS OF MILK DISTRIBUTION. 

The costs of milk distribution are dependent upon capital invest- 
ments in plant and equipment, delivery equipment, and operating ex- 
penses both in the plant and in delivery. 

Data obtained by careful investigations show that capital invest- 
ments in plant and equipment range from about $20,000 to $150,000, 
with an appropriate average of $60,000 for plants handling 2,000 
to 6,000 gallons daily. The investment in delivery equipment varies ac- 
cording to the amount of wholesale or retail business and the amount 
handled on each distributing wagon. It is apparent that when retail 
wagons cost $200 to $300 each and wholesale wagons $350 to $450 
each, and horses $150 to $225 each, and when from 250 to 400 quarts 
are handled daily on retail wagons and 1,200 to 1,800 quarts on whole- 
sale wagons, the investment on retail wagons may range from $1.25 
to $1.75 per quart sold daily and on wholesale wagons from 50 to 75 
cents per quart. 

Labor costs on retail and wholesale routes vary in different cities 
and may range on retail routes from 1^ to 2^ cents per quart, with 
additional costs for horse feed amounting to $1 or more per day 
or one-fourth to one-third cent per quart. The delivery costs under 
different local conditions may range from 40 to 65 per cent of the 
total costs from producer to consumer, which "spread" or margin 
may range from 4 cents per quart to 6 or 7 cents, and in some in- 
stances to 8 cents per quart. 

It is impossible to give an average figure which would fairly repre- 
sent prevailing conditions, for the costs of labor, supplies, and equip- 
ment are constantly changing, and conditions are not the same in 
any two cities. The spread on wholesale sales may vary from 1 to 3 
cents less per quart than on retail sales. Thus, with a margin of 
3 cents less, and with the assumption that the retail store handles on 
a 1-cent margin, it is possible for milk to be sold to consumers through 
stores at 1 to 2 cents less per quart than on retail routes, making 
house-to-house deliveries. 

It should be remembered that under any system of plant operation 
and sales delivery, costs are largely dependent upon local conditions, 
the extent to which the business is efficiently managed, and whether 
detail operations are conducted in an economical manner. Perhaps no 
one thing is more important for proper management and maintenance 
of low operatinjg costs than a system of accounts and cost records 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 29 

which quickly enables the various phases of the business to be ana- 
lyzed and comparisons to be made, thus giving the best opportunities 
for policies to be formulated for the greater success of the business. 

NECESSITY FOR ADEQUATE ACCOUNTING SYSTEM. 

Among the important causes of many business failures in recent 
years, according to our large commercial reporting agencies, has been 
a lack of accurate and detailed information concerning the business. 
Inasmuch as the only reliable source of information concerning busi- 
ness operations is the records kept of them, it would seem that the 
importance of proper records as an aid to successful management is 
deserving of more consideration than is ordinarily given the subject. 
The importance is further emphasized by the statement of a certain 
national trade association that 85 per cent of the failures in business 
are due to inadequate bookkeeping. It is the unanimous opinion of 
those who have made a study of the subject that a very decided im- 
provement must be made in bookkeeping methods before any appre- 
ciable decrease can be expected in the present heavy business mor- 
tality rate. 

In cooperative organizations it is just as essential that adequate 
and proper accounting records be kept as it is in private and cor- 
porate enterprises. Aside from the question of success or failure 
there are other benefits which may be derived from adequate account- 
ing. Uniformity in the manner in which financial and operating re- 
ports are compiled is of great importance. The true progress of a 
business can be judged only by comparing the results of one year with 
those of preceding years. Therefore, if it is desired to know the 
progress that has been made, the reports must be comparable. The 
reports are not comparable and can not be made so unless the records 
have been kept on the same bases year by year and all the facts have 
been recorded. Unless the system is truly adequate, some of these 
facts are sure to be omitted and thus the entire report rendered worth- 
less. 

The preparation of proper income-tax reports, cost statements as 
a basis for selling prices, wage scales, and the whole operation of the 
business depend upon information which can be secured only by the 
use of an adequate system of accounting. 

But first it should be determined for a certainty that the system 
is really adequate. A small number of forms, requiring little work 
to keep them and purchased at a small initial cost, by no means con- 
stitutes an adequate system of accounting. Any system is worthless 
if it does not supply the information needed to conduct the business 
properly. 



30 BULLETIN 1095, U. S. DEPAETMBNT OF AGRICULTUEE. 

ESSENTIALS OF AN ADEQUATE ACCOUNTING SYSTEM. 

The items of information that an adequate system of accounting 
may furnish are many, but a few of the more important ones will be 
mentioned. 

One important item is the information as to whether the business 
as a whole has been conducted at a profit or at a loss. This, of course, 
the books must reveal; but they should reveal much more than the 
mere fact that a profit or loss has resulted from the operation. They 
should show which particular part of the operation has been con- 
ducted at a profit and which has resulted in a loss. Further, it should 
be readily seen what particular item of expense or income has had the 
largest part in accomplishing the result. In order that this may be 
thoroughly understood, it is necessary to know the exact effect of this 
item in previous years. This makes it imperative that the statement 
be prepared on a comparative basis and in a way that will allow each 
item to be shown side by side with the same item of previous periods. 

Another point of information is the balance sheet or statement of 
the financial condition. This is often thought to be of less im- 
portance than the statement of profits. Actually, however, it is of 
equal if not greater importance, and can reveal an almost untold 
amount of information when properly prepared and studied. Like 
the profit- and-loss statement, to be of real value, it must present 
the financial progress that has been made in addition to the exact 
financial condition at a certain date. A statement of this kind is 
fast becoming a necessary part of the information required by many 
banks in passing upon an application for a loan, and one must be 
submitted to the Treasury Department as a part of the income- 
tax report. It should be prepared in the form recommended by 
the Federal reserve bank, and the accounting system should be so 
constituted. 

In order that two items may be compared, they must be alike. 
It is impossible to compare items on the financial report at different 
dates unless they are alike. It means nothing to compare the 
amount expended for repairs this year with that of last year, unless 
it is known that exactly the same kind of items have been charged 
to the open account each year. It is imperative, therefore, that 
the same ledger accounts be kept in exactly the same manner over 
a period of years if any reliance is to be placed on the reports. 
Often it is desirable to compare the results obtained by another 
organization in the same line of business. This is impossible unless 
the two organizations use a uniform and standard classification 
of ledger accounts. These accounts should be so arranged in the 
ledger that the statement just referred to can almost be prepared 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 31 

by copying onto a form the balances of the accounts in the order 
in which they appear in the ledger. 

ESSENTIAL RECORDS FOR AN ADEQUATE ACCOUNTING 

SYSTEM. 

The necessary records comprising an adequate system for milk- 
distributing plants may be classified briefly into : 



1. Receiving records. 

2. Purchase records. 

3. Driver's records. 

4. Sales records. 

5. Receipts and disbursements records. 



6. Accounts receivable records. 

7. Pay roll. 

8. Storeroom records. 

9. The journal and ledger. 
10. Statistical records. 



The number of forms required for the keeping of these r cords 
depends to a large extent upon the volume and complexity of the 
business. Plants operating in the large cities, receiving their milk 
supply by rail from receiving stations located at distant points, 
and operating many routes, milk depots, and retail stores in the 
city, require a much more detailed system of records and accounts 
than is required in small plants receiving their milk supply direct 
from the producers. 

As it is not practicable to treat the subject exhaustively in a pub- 
lication of this nature only the essential information required from 
each class of records will be described. 

THE RECEIVING RECORDS. 

The receiving records should show the quantity and value of the 
milk received, deductions from this amount for any reason, such as 
advances, and the amount actually paid to each producer, as well as 
the total value and quantity of delivef^es^ deductioTis^ and payments. 

When milk is brought to the plant it should be weighed at the 
receiving platform and each producer given a receipt for the quan- 
tity delivered. The duplicates of these receipts should be sent to the 
office and entered on milk pay-roll sheets. At the end of the payment 
period calculation should be made of the quantity delivered by the 
various producers. The unit price should then be entered and ex- 
tension made of the gross amount due the various producers. From 
these amounts deductions should be made for advances or other pur- 
poses and the net amount of the check shown. When the day for 
payment arrives checks should be drawn for the various amounts 
and their numbers entered in a proper space on the milk pay-roll 
sheet. The total of these payments should be entered in the check 
register, the pay roll serving to show the detail necessary for proper 
reconcilement of the bank account. 



B2 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE. 

PURCHASE RECORDS. 

The purchase records should contain a complete history of every 
purchase (other than milk or cream) made by the organization. 
These purchase records should include a purchase requisition, a 
purchase voucher, a voucher register, and a voucher index. 

Before any purchase is made a requisition should be issued and 
approved by the manager or other officer in charge of purchases in 
order that no unnecessary goods may be bought. This order should be 
issued in duplicate, the original mailed to the supply firm and the 
duplicate placed in an unfilled order file until the goods are received. 
When the invoice is received the duplicate purchase requisition should 
be removed from the file, attached to the invoice, and returned to the 
file. When the goods are received the invoice should be taken from 
the file, checked with the goods and with the duplicate of the purchase 
requisition, and entered in a purchase voucher. It is often helpful 
to have a record on the duplicate purchase requisition of the quantity 
on hand, monthly consumption, and last quotation. A purchase 
voucher, which forms a filing jacket in which the requisition and 
invoices are placed for filing, should be filled out and the invoice 
noted thereon ; it is then assigned a number and filed until the end of 
the month. But one voucher is made for a single concern for any 
given month ; hence a purchase voucher may contain several invoices. 
Vouchers should be filed in numerical order. 

In order that any invoice may be easily located an alphabetical 
index should be kept on 3 by 5 cards. This index should contain a 
card for each company from whom purchases have been made at any 
time. All numbers aligned to purchase vouchers of an individual 
concern should appear chronologically on the index card showing the 
company's name. 

At the end of the month all purchase vouchers for the month should 
be taken from file and completed by entering in the space provided 
the total amount of invoices included in such voucher, and the allo- 
cations to the proper ledger account should be made. The vouchers 
then should be entered consecutively in the voucher register to the 
credit accounts payable, charges being made as indicated on the 
voucher, after which these should be filed in numerical order accord- 
ing to the number previously assigned. 

The voucher register contains a record of the purchase vouchers. 
It should be provided with a number of columns, so that items of 
frequent occurrence may be collected, thus decreasing the amount 
of work required in posting. 

A memorandum column should be provided on the left-hand side 
for entering the number and amount of checks given in payment as 
vouchers. No detail accounts payable need be kept, as the voucher 
and voucher record afford a convenient record of all such items. 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 33 

DRIVER'S RECORDS. 

The product taken out by a driver should be checked out to him 
on a load sheet by the checker. This load sheet should be retained 
by the checker until the driver returns, the returned goods and empty 
containers should be noted thereon, and the net sales determined. 

The driver should then fill out a sales report showing the quantity 
and value of each item sold, the amount of cash and tickets collected, 
the detail of all other transactions, and should present it, together 
with his copy of the load sheet, to the cashier as a basis for his daily 
settlement. In making this settlement the cashier must check the 
load requisition sheet with the sales report as to quantity of sales, 
the sales report with the cash turned in as to cash sales and collec- 
tions, and collect the proper amount from the driver.^ 

The ticket sales should be handled in the same manner as other 
sales by providing a place for " tickets out " and " tickets in " on the 
driver's load sheet and for "tickets sold" and "tickets collected" 
on the driver's sales report. The driver's sales report, after being 
checked, is passed to the bookkeeper for entry in the sales book. 
The counter clerk and special delivery driver should be required to 
make out a daily requisition and sales report. 

THE SALES RECORD. 

The sales record should furnish a complete detailed analysis of all 
sales. 

A sales sheet should be made out for each salesman and the sales 
as shown on the sales report entered on this sheet. At the end of the 
period all sales sheets should be footed and balanced and the several 
footings recapitulated, giving the total sales for the period. The 
retail and wholesale sales should be kept separate. 

RECEIPTS AND DISBURSEMENTS. 

All money should be received by the cashier, who should issue a 
receipt for each payment, retaining a duplicate in the office. The 
cash-receipts book is a register of all cash received and must be 
written up from the duplicates of the cashier's receipts. All money 
received should be deposited in the bank daily. The cash-receipts 
book should be so arranged that the receipts can be shown to agree 
with the bank deposit. 

All disbursements should be made by check, which should be 
entered in the check register. The manager should give the neces- 
sary instruction when any payment is to be made. Checks should 

1 This refers solely to a cash, system of sales. In case a, credit system is in use, addi- 
tional safeguards should be established to insui-e proper accounting for all sales and 
collections. 



34 BULLETIN 109'5, U. S. DEPARTMEIfrT OF AGRICULTURE. 

be registered when issued and the totals of the check register will 
be the total disbursements for the period. 

ACCOUNTS RECEIVABLE RECORD. 

Where a credit business is conducted an abnormally high percent- 
age of loss from bad accounts is frequently experienced. It often 
happens that a company has credit customers whose names do not 
apiDear on the route book, the number of the house being the only 
record. In allowing credit the driver should never fail to take the 
customer's name in order that he may be traced in case of moving 
from one address to another, and his credit standing in the com- 
munity may be ascertained. Many losses occur through the failure 
of drivers to follow up collection programs and a neglect of the 
company to check outstanding accounts properly. 

One of the most important features of an accounting system for 
milk plants is the method used in controlling route charges and 
collections. Great care should be exercised in checking the receipts 
on account and the charges shown on the driver's route book and in 
keeping the amount shown in agreement with the controlling ac- 
count. Sound business practice demands that milk accounts should 
not be allowed to stand on the books uncollected for a period of 
more than 30 days, 

PAY ROLL. 

A time book or pay roll should be kept at all times, showing for 
each employee the time worked, rate of pay, and amount due. At 
the end of the month the total amount due for wages and salary 
should be charged to the proper expense account and credited to the 
pay-roll account, whether or not these amounts have been paid. 

Checks given in payment for labor or salary and advance pay- 
ments on them should be charged to the pay-roll account. By fol- 
lowing this method expense accounts will always show correct 
charges regardless of the time of payment, and any credit found 
in the pay-roll account at the end of the month will represent an 
accrued liability on account of unpaid wages and salary. 

STOREROOM. 

Too much emphasis can not be placed on the matter of handling 
supplies and equipment purchased by a company for sale or for 
£uture use. This property should be safeguarded no less carefully 
than should' cash. Frequently this is not done, and the loss oc- 
curring through this neglect is a serious factor in the failure which 
often follows. Therefore, a very thorough system of accounting for 
supplies placed in and withdrawn from the storeroom should be 
kept. 



COOPERATIVE MILK-DISTRIBUTING PLANTS. 35 

All supplies purchased for future use should be kept in the store- 
room and charged to the storeroom account. These supplies should 
be recorded on an inventory sheet. As supplies are required for use 
a storeroom requisition should be made by the employee needing 
these supplies, such requisition showing the quantity, size, and 
other information necessary to identify the supplies desired. The 
requisition must be approved by the factory foreman or manager 
and presented to the storeroom keeper, who will deliver the mate- 
rial to the employee. The storekeeper should then fill in the price 
and at intervals record the requisitions on the inventory sheet. At 
the end of the month the value of the material withdrawn from the 
storeroom is credited to storeroom accounts and charged to the 
various accounts affected by the use of this material. 

THE JOURNAL. 

All the information recorded in the records heretofore described 
is classified monthly and made ready for posting into the general 
ledger in a book called the journal. This book is all-important, and 
is a connecting link between the original record and the ledger from 
which all information is secured to compile financial and operating 
reports. All general ledger posting must be made from this book 
(the journal) and from no other records.^ 

THE GENERAL LEDGER, 

The ledger is the book of accounts. After the transactions of the 
business have been recorded in the journal, the debit and credit items 
arising from such transactions are posted (or transferred) to the 
proper accounts in the ledger. In this manner all the facts concern- 
ing the particular subject are collected under its name and can be 
viewed as a whole. 

Any system of accounting, to be of maximum value to those who 
control the business, must have a very carefully planned and clearly 
defined classification of ledger accounts, and the person charged with 
keeping these accounts must adhere rigorously to this classification. 

THE STATISTICAL REPORTS. 

Inasmuch as the entire bookkeeping is carried on for the purpose of 
accumulating and presenting information concerning the operation 
of the business, too much care and attention can not be given to the 
preparation of statistical reports, chief among which are the income 
and expense statements, and the balance sheets, and the cost sheets. 

2 In large and well-organiaed milk-distributing plants it is equally satisfactory to make 
postings direct from the original records ; in the average milk plant, however, this is not 
advisable. 



36 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTUEE. 

The income and expense statements should show in detail just 
which phases of the business are most profitable, the net profit or 
loss, and all the facts relative to the operation of the business for 
the period, as well as comparison with the previous period. The bal- 
ance sheet should reflect the exact financial condition and should 
also show comparison with previous periods. The cost reports must 
show the unit cost (per quart) of every item of expense and the total 
cost per unit. 

QUANTITY RECORDS. 

Among the most important of all are the records of the quantity 
of milk handled through the various processes. Large volume (or 
quantity) is an important factor in a milk-distributing business, and 
for this reason unit costs must be closely watched. No manager can 
form a correct judgment of the efficiency of the operations unless 
he has the total quantity to compare with the total cost, and an ac- 
counting system arranged to show such information will be the 
best possible tool with which to ward off business failure. 

It would be impossible to put too much emphasis on the importance 
of keeping adequate quantity records. 

COST OF KEEPING ADEQUATE RECORDS. 

A word of warning might be spoken regarding the operation of an 
accounting system. It is often looked upon as a necessary evil, the 
expense of which should be reduced in every way possible, and especi- 
ally by such methods as the employment of low-salaried, incompetent 
bookkeepers, whose only recommendation is too often the small sal- 
aries for which their services may be secured. Unquestionably book- 
keeping and all office expense should be kept as low as possible, but 
any reduction which tends to confuse and distort the information 
which a properly operated accounting system can furnish for the 
guidance of the management should not be considered for a moment. 
Without these important reports, those responsible for the direction 
of the affairs of the organization have no information on which to 
formulate the policies of management. Under these conditions 
proper guidance of the business is an impossibility. 

A first-class bookkeeper will prove an exceedingly valuable asset ; 
and after his work is done, to reap the best benefits possible from 
an adequate accounting system, nothing can take the place of a regu- 
lar independent audit by a reputable firm of public accountants. 
The cost may seem excessive, but it will not be when compared with 
the benefits derived from it. 



APPENDIX. 

By-Laws of the Association.' 

Aeticle I. — Name. 

Section 1. This association, incorporated under tlie laws of the State of 
, shall be known as the ( Association). 



Sec. 2. Its i:»rincipal office shall be located in the town of -. 

Article II. — Objects. 

Section 1, The objects of this association shall be to encourage better and 
more economical methods of production, manufacture, and sale of milk, cream, 
butter, cheese, and other dairy products and dairy by-products and to engage 
in handling, grading, marketing, standardizing, manufacturing, storing, and 
advertising dairy products and dairy by-products. 

Sec 2. In order to carry out these objects the association shall have power^ 
(a) To purchase, rent, buy, build, or otherwise acquire and own, sell, lease, 
or control such buildings and equipment and real and personal property as may 
be needed for the convenient conduct of its operations. 

(&) To borrow money and to secure the same by a mortgage, deed of trust, 
or other form of security upon any of its property, real or personal. 

(c) To cooperate and affiliate, through membership or otherwise, with any 
other cooperative association formed for similar purposes in order to carry out 
the objects of this association. 

Note. — Make the objects as definite as possible; but it is also well to 
make them sufficiently broad in scope to cover any future efforts of the 
association. Care should be taken to state the objects, so as to keep the 
activities within the limits of the power conferred by the statute under 
which the association is incorporated, as well as in harmony with the 
articles of association. 

Aeticle III. — Membership.'' 

Section 1. Any bona fide producer of dairy products in the territory served by 
this association may become a member of the association by agreeing to comply 
with the by-laws of this organization and purchasing at least (one) share of 
capital stock. 

1 Adapted from. Bulletin No. 541 of the U. S. Department of AgTiculture entitled 
Cooperative Organization By-Laws. All matter appearing in parenthesis is suggestive 
merely and is to he altered to suit the best interest of each association. Those who desire 
to form an association which will come within the scope of the Cappor-Volstead Act 
should remember that such an association (a) must be composed entirely of producers ; 
(6) must not deal in the products of nonmembers to an amount greater in value than 
such as are handled by it for members ; and (e) must comply with one or both of the 
following requirements : ( 1 ) That no member of the association is allowed more than 
one vote because of the amount of stock or membership capital he may own therein, or 
(2) that the association, does not pay dividends on stock or membership capital in excess 
of 8 per centum per annum. Fuller information concerning the Capper-Volstead Act 
may be obtained from the Bureau of Agricultural Economies, United States Department 
of Agriculture. 

2 The following is applicable to capital-stock organization. On p. 43 suitable sections 
for nonstock organizations are suggested. 

37 



38 BULLETIN 1095, U. S. DEPARTMENT OF AGKICULTUEE. 

Aeticle IV. — Fiscal Tear — Meetings. 

Section 1. The fiscal year of the association shall commence (January 1) 
and. end on (the 31st of the following December). 

Sec. 2. The annual meeting of the association shall be held in the town of 

( ) on the (third Monday in January) of each year, at (10 o'clock 

a. m.) 

Note. — The annual meeting should be held as soon after the end of the 
fiscal year as will allow for the settlement of all accounts, auditing of the 
books, and the preparation of the annual reports of the officers. 

Sec. 3. Special meetings may be called at any time by the president. He 
shall call such meetings whenever (10 per cent) of the members shall so request 
in writing. 

Sec. 4. Notice of the annual meeting shall be mailed by the secretary to each 
member at least 10 days previous to the date of the meeting and such notice 
shall be published in a local newspaper not less than (10 days) previous to the 
date of the meeting. At least (10 days) before the date of any special meeting 
the secretary shall mail notice of such meeting to each member, which shall 
state the nature of the business to be transacted at such meeting. 

Article V. — Quorum. 

Section 1. (One-fourth) of the members in good standing shall constitute a 
quorum for the transaction of business at any meeting. 

Note.— When the organization is small and compact, the proportion 
required for a quorum may be larger than in a large organization which 
includes considerable territory. 

Article VI. — Directors and Officers. 

Section 1, The board of directors of this association shall consist of (seven) 
members. After the adoption of these by-laws, the members shall elect from 
among themselves (seven) directors, Vv'ho shall hold office for the period of one 
year or until their successors shall have been elected and qualified and shall 
enter upon the discharge of their duties. 

Note. — In seme States the corporation laws stipulate the number of direc- 
tors and officers an association shall have. The plan of having each district 
represented on the board of directors tends to avoid jealousies between the 
various districts, but a small board of capable men is to be preferred to a 
large board composed largely of members who can not give proper attention 
or time to their duties on the board. In case it should be the wish of the 
members to recall a director this can be effected under section 6 of this 
article. 

Sec. 2. The board of directors shall meet within (10) days after the first elec- 
tion and after each annual election, and shall select by ballot a president and 
a vice president from among themselves, and a secretary treasurer (or a secre- 
tary and a treasurer) who may or may not be a member of the association. The 
officers shall hold office for one year or until their successors are duly elected 
and qualified. 

Note. — In some organizations it is desirable to have some one outside 
the membership act as secretary or treasurer. When such is desired proper 
provision for it should be made in the by-laws. In some cases, especially 
when the board of directors is large, it is desirable to have an executive 
committee. Such a committee may consist of the officers and one or more 
members of the board of directors. 

Sec. 3. Any vacancy in the board of directors shall be filled for the unex- 
pired term at a special meeting called for the purpose. 



COOPERATIVE MILK-DISTRIBUTTNG PLANTS. 39 

Sec. 4. (Four) members of the board of directors shall constitute a quorum at 
any meeting of the board. 

Sec. 5. (The compensation, if any, of the board of directors and the officers 
shall be determined by the members of the association at a regular or called 
meeting of the association.) 

Sec. 6. Any director or officer of the association may be removed from office 
at any annual or special meeting by a two-thirds vote of the members present 
following the mailing of a notice to each member in accordance with these 
by-laws specifying that the matter of the removal of such director or officer is 
to be voted upon at such meeting. Such director or officer shall be informed 
in writing of the charges against him at least (10) days before such meeting, 
and at such meeting shall have an opportunity to be heard in person, by counsel, 
and by witnesses. 

Article YII. — Duties of ihe Directors. 

Section 1. The board of directors shall be responsible for the proper conduct 
of the business affairs of the association and shall make any necessary rules 
and regulations, not inconsistent with law or with these by-laws, for the manage- 
ment of the business and the guidance of the officers, employees, and agents of 
the association. 

Sec. 2. The board of directors shall have the power to establish rules and 
regulations regarding the inspection and grading of the products handled by the 
association. 

Sec. 3. All brands, labels, trade-marks, and the like, established by the asso- 
ciation, shall be registered and become its property, and they shall be attached 
only to such grades n.s shall be designated by the board of directors.' 

Sec. 4. The board of directors may employ a business manager, fix his com- 
pensation, and dismiss him for cause. He shall conduct the business of the 
association in accordance with a policy agreed upon and approved by the board 
of directors. 

Sec. 5. The board of directors shall require the treasurer and all other officers, 
agents, and employees responsible for the custody of its funds or property to 
give bond with sufficient surety for the faithful performance of their official 
duties, the cost of which shall be paid by the association. 

Sec. 6. The board of directors shall meet on the (first Saturday) of each 

month at the office of the association in the town of ( ■ ). Special 

meetings of the board shall be held upon call of the president or upon written 
request of (three) members of the board. 

Article VIII. — Duties of the Officers. 

Section 1. The president shall — 

(a) Preside over all meetings of the association and of the board of di- 
rectors. 

(6) Sign as president, with the (secretary-ti'easurer) all checks, notes, deeds, 
and other instruments on behalf of the association. 

(c) Call special meetings of the association and of the board of directors and 
perform all acts and duties usually required of an executive and presiding officer. 

Sec. 2. In the absence or disability of the president, the vice president shall 
perform the duties of the president. 

^ The rules for grading and inspection will necessarily depend on the organization 
and the kind of business engaged in and this should be kept in mind when drawing up 
the by-laws. 



40 BULLETIlSr 1095, U. S. DEPAETMENT- OF AGRICULT'CrKE. 

Sec. 3. The (secretary-treasurer) shall — 

(a) Keep a complete record of all meetings of the association and of the 
board of directors. 

(6) Sign as (secretary-treasurer), with the president, all checks, notes, deeds, 
and other instruments on behalf of the association, previously approved by the 
business manager. 

(c) Serve all notices required by law and by these by-laws. 

(d) Receive and disburse all funds and be the custodian of all property of 
this association. 

(e) Keep a complete record of all business of the association and make a full 
report of all matters and business pertaining to his office to the board of di- 
rectors monthly and to the members at their annual meeting and make all re- 
ports required by law. 

(f) Perform such other duties as may be required of him by the business 
manager, the board of directors, and the association. 

Note. — When the offices of secretary and treasurer are separate the dirties 
of each should be given in different sections. 

Article IX. — Duties and Potvers of the Business Manager. 

Section 1. Under the direction of the board of directors, the business manager 
shall employ and discharge all employees, agents, and laborers. He shall gener- 
ally supervise the production, handling, manufacture, and marketing of the 
dairy products and dairy by-products of the association, to the end that the 
business of the association may be conducted in the most economical and efficient 
manner. 

Note. — The manager occupies a highly important position and his power 
must be limited as little as possible. The success or failure of the associa- 
tion rests to a large degree with him. He can not be held responsible if 
he is to be dictated to at will by each member or if the officers are to meddle 
constantly with his work. This does not mean that the manager should not 
be subject to the orders of the board of directors. He should take sugges- 
tions from the officers and members and from them and his own experience 
formulate a business plan. Whenever a manager loses the confidence of 
the members he should be replaced. 

Article X. — Capital Stock.* 

Sec. 1. The capital stock of this association shall be dollars, divided 

into shares of dollars each. 

Sec. 2. Each member shall subscribe for one share of capital stock for each 

of to be delivered by him to the association. Such shares shall 

be paid for in cash, or deductions may be made and applied to the payment of 
the shares from amounts due him by the association for products delivered and 
sold by it. The amount of such deductions shall be fixed by the board of direc- 
tors. Shares shall not be issued until paid for in full. 

Sec. 3. Whenever any stockholder desires to sell his stock he shall first offer 
it to the association for purchase by it or by a person or persons designated by 
the board of directors of the association at a price to be conclusively determined 
by the board of directors. In the event the stock is not purchased by the associa- 
tion or by a person or persons designated as aforesaid, within 30 days after the 
receipt of a written notice by the association offering the stock for sale, then the 
stockholder may sell the stock to any person. engaged in the production of dairy 
products. This restriction on the transfer of stock shall be printed on every 
certificate of stock. 

* These sections are applicable to capital-stock organizations. On p. 43 suitable sec- 
tions for nonstock organizations are suggested. 



GOOPEEATIVE MILK-DISTRIBUTING PLANTS. 41 

Sec. 4. If any member shall by purchase or by operation of law come into pos- 
session of more than shares of the capital stock of this association, the 

board of directors may elect to purchase, and such member shall then sell to the 
association, such excess shares at a price to be conclusively determined by the 
board of directors, plus any dividends or refunds due and unpaid. Also, in the 
event of the death or disability of the owner of any shares of stock in this 
association, such shares of stock may be purchased by the association and shall, 
in the event the board of directors elects to purchase them, be sold by such 
owner or his legal representatives to the association at a price to be conclusively 
determined by the board of directors, plus any dividends or refunds due and 
unpaid. 

Note. — The legal effect of sections 2, 3, and 4, above, depend entirely upon 
the charter provisions and the laws of the State in which the association is 
incorporated. They are suggested here as possible means of safeguarding 
cooperative principles, and are to be incorporated into or excluded from the 
by-laws upon the advice of competent legal counsel. Printing these restric- 
tions upon the body of the stock certificate is a convenient and effective 
method of giving notice of such restrictions to intending purchasers. 

If the organization desires to have both common and preferred stock, 
proper provision for such should be made in this article. 

Article XI. — Contracts and Agreements. 

Section 1. Every producer delivering milk or dairy products to this associa- 
tion shall enter into a contract with the association in the form required by the 
board of directors, containing, among others, the following provisions : 

(a) That the member, by said contract, appoints the ( Associa- 
tion) his sales agent to sell all dairy products and dairy by-products produced 
by him for sale or such part thereof as shall be specified in the contract, and 

binds himself to deliver such products to the ( Association) for 

sale at such time and place as the association directs. 

( 6 ) That said contract shall run continuously unless canceled by the member 

on the of any year by surrendering his contract and giving written notice 

to the association at least 30 days prior to said date of his desire to cancel the 
contract. Such cancellation shall be subject to any indebtedness due from the 
member to the association. 

Note. — ^No cooperative association should attempt to do business without 
first having made a definite contract with each producer. Such contracts 
tend to give stability and permanence to the organization and enable the 
manger to plan more definitely for the handling and sale of the products 
received. 

Akticle XII. — Duties and Rights of Mem'bers. 

Section 1. A member shall have the right to give away or retain for his 
use in his household or on his farm* such of his dairy products as he may wish, 
but he shall not sell any products contracted to the association to an outside 
party, except products offered to and rejected by the association. 

Sec. 2. In case any member is offered a price in excess of the price obtainable 
by the association, said member shall refer said bid to the association. 

Sec. 3. On or before day of of each year each milk producer 

shall report to the association the number of cows which he has in his herd 
and the approximate amount of dairy products which he expects to market 
monthly through the association during the ensuing year. 

Sec. 4. Each stockholder of the association shall have only one vote. Voting 
by proxy shall not be permitted. Members may vote by mail on specific ques- 



42 BULLETIIsr 1095, U. S. DEPARTMENT OE AGRICULTURE. 

tions in those instances where authorized to do so by the board of directors. 
In such cases the secretary shall mail notices of such specific questions to 
each member (10) days before the date of the meeting. Members voting by 
mail on specific questions shall transmit their ballots to the secretary of the 
association by registered mail and such ballots shall be counted only in the 
meeting at the time at which such vote is taken. 

Note. — In a stock company, organized to earn profits on the money in- 
vested in the business, voting rights are granted to tlie stockholders in pro- 
portion to the number of shares held. In a cooperative association where 
the individual members have common interests, equality is obtained by 
limiting each member to one vote. The practice of allowing members to 
collect the proxies of absent members and vote the same tends to give 
such members undue influence in the affairs of the association. 

Sec. 5. Any member having a grievance or complaint against the association 
may appeal to the board of directors, or to the members, at any regular or 
called meeting. 

Article XIII. — Expenses and Payments. 

Section 1. The expenses of operating and maintaining this association shall 
be met by a percentage deduction from the returns for products sold, the amount 
of such percentage to be fixed by the board of directors. 

Sec. 2. The returns from the sale of all products of the same grade shall 
be pooled and final payments made to producers on the basis of the average 
price received during such periods as the board of directors from time to 
time may determine. Advance or partial payments for such products shall be 
made to the producers as the board of directors may determine. 

Article XIV. — Refunds and Damages.^ 

Section 1. After payment to the producers of a specified portion of the amount 
received for their product, and after the season's expenses are paid and a suit- 
able sum, to be determined by the board of directors, set aside for depreciation 
and reserves, the balance shall be divided as follows : 

(ft) The stockholders shall receive not to exceed (6) per cent per annum on 
the par value of tlieir stock. 

(&) The remainder, if any, shall be divided among the patrons of the asso- 
ciation in proportion to the value of the products handled for all such patrons 
whether members or nonmembers. 

Sec 2. Any member who fails to live up to his agreement or fails or refuses 
to deliver his product.s to the association for sale in accordance with said agree- 
ment shall pay to the association as liquidated damages the sum of for 

each of not delivered by him to compensate the association for 

the loss sustained by the breach, and to enable it to meet and equitably dis- 
tribute overhead and maintenance expenses* involved in the operation of the 
association and in providing and maintaining facilities for the handling and 
marketing of the products of its members ; said sum may be deducted from any 
money due the member in the possession of the association. 

Article XV. — Accounts and Auditing. 

Section 1. This association shall install a standard system of accounts, and 
provide such accounting appurtenances as may be necessary to conduct the busi- 
ness in a safe and orderly manner. 

B These sections are applicable to capital-stock organizations. On p. 43 suitable sec- 
tions for nonstock organizations are suggested. 



COOPEEATIVE MILK-DISTRIBUTING PLANTS. 43 

Sec. 2. The books and records of the business of the association shall be aud- 
ited (monthly) by a competent auditor selected by the board of directors. A 
complete annual audit shall be made by a competent accountant previous to 
the date of each annual meeting, at which meeting the report of the auditor 
shall be presented in full. Special audits shall be made upon order of the board 
of directors or upon a majority vote of the members present at any regular 
or called meeting. 

Article XVI. — A inendments. 

Section. 1. These by laws may be amended at any meeting by two-thirds vote 
of the members present in person or voting by registered mail, provided that 
notice of such proposed amendment is included in the call for said meeting. 

BY-LAWS FOR NONSTOCK ORGANIZATIONS. 

While most of the cooperative milk plant organizations have been 
formed with capital stock, the nonstock plan has been adopted in some 
instances. The following articles are suggested for substitution for 
the corresponding articles in the preceding by-laws in adapting them 
to organizations formed without capital stock. 

Article III — Membership. 

Section 1. Any bona fide producer of dairy products in the territory served by 
this association may become a member of the association by agreeing to com- 
ply with the requirements of these by-laws. 

Sec 2. Upon the payment of the membership fee, the association shall issue 
a certificate of membership to the applicant. Such certificate of membership 
■ shall not be transferable. The willful violation of the by-laws of this associa- 
tion or of the contract or contracts entered into by the association with any 
member shall constitute a sufficient cause for expulsion of such member. 

Sec 3. No member shall be expelled from the association except by a two- 
thirds vote of the members present at any annual or special meeting following 
the mailing of a notice to each member in accordance with these by-laws, speci- 
fying that the matter of the expulsion of such member is to be voted on at the 
meeting. The member shall have charges preferred against him 10 days in ad- 
vance of such meeting and shall have an opportunity to be heard in person, by 
counsel, and by Avitnesses. After a hearing, if the board of directors determines 
that a member has ceased to be a bona fide producer of dairy products, his mem- 
bership shall be terminated and his membership certificate canceled. 

Article X.— Membership Fees and Finance. 

Section 1. Each member shall pay in advance to the association a member- 
ship fee of ($ ). 

Sec 2. Certificate of indebtedness which shall draw interest at the rate of 
(6) per cent per annum, may be issued by the board of directors to provide 
capital to be used for the purchase or construction of buildings, the lease or 
purchase of lands, the purchase of equipment, and for other purposes. 

Sec 3. These certificates shall be issued in series and shall be retired by a 
special fund created by levying a percentage assessment, to be determined by 
the board of directors, on the products sold through the association. This 
amount shall be sufficient to retire all certificates as they fall due and pay the 
interest thereon. 



44 BULLETIN 1095, U. S. DEPAETMBlSrT OF AGEICULTUEE. 

Sec. 4. At the end of each fiscal year each member shall receive a certificate 
for the amount of money which he has contributed that year to the special 
loan fund levied on his products. These assessments shall continue from year 
to year, and out of the proceeds arising therefrom the holders of certificates 
shall be paid the amounts due them, and this process of repayment shall con- 
tinue during the life of the association, 

ARTICLE XIV. — Refunds and Damages. 

Section 1. After the season's expenses are paid and a suitable sum, to be 
determined by the board of directors, set aside for depreciation and reserves, 
the balance of the season's returns of savings on products shall be divided 
among members and nonmember patrons, if any, in proportion to the value of 
their products sold or handled by the association for them. 

Sec. 2. Any member vpho fails to live up to his agreement, or fails or refuses 
to deliver his products to the association for sale in accordance with said 

agreement shall pay to the association as liquidated damages the sum of 

for each of not delivered by him to compensate the association for 

the loss sustained by the breach and to enable it to meet and equitably dis- 
tribute overhead and maintenance expenses involved in the operation of the 
association and in providing and maintaining facilities for the handling and 
marketing of the products of its members ; said sum may be deducted from 
any money due the member in the possession of the association. 



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